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![Page 1: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/1.jpg)
The International Rice Market:
Market Integration and Import Demand Analysis
Danish Research Institute of Food Economics
Chantal Pohl Nielsenand
Wusheng Yu
![Page 2: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/2.jpg)
Motivation
• Global CGE models used for trade analysis
• No better than the theory and data underpinning it
• Econometric critique of parameters used in CGE models
• This paper contributes to on-going effort of providing an econometric foundation for the parameters used in GTAP
• Limited scope:- Elast. of subst. between imports from different sources- Rice
![Page 3: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/3.jpg)
Analytical Approach
Step 1: Is the Armington structure appropriate ?
Cointegration analysis to determine integration of submarkets homogenous or heterogenous goods
![Page 4: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/4.jpg)
Analytical Approach
Step 1: Is the Armington structure appropriate ?
Cointegration analysis to determine integration of submarkets homogenous or heterogenous goods
Step 2: Elast. of subst. estimated for key importers
![Page 5: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/5.jpg)
Analytical Approach
Step 1: Is the Armington structure appropriate ?
Cointegration analysis to determine integration of submarkets homogenous or heterogenous goods
Step 2: Elast. of subst. estimated for key importers
Step 3: Simple illustration of implications for trade lib.
![Page 6: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/6.jpg)
Background
• International rice market: Thin and volatile
![Page 7: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/7.jpg)
Background
• International rice market: Thin and volatile
Traded volumes as a percentage of world production Source: FAOSTAT (2001)
0
5
10
15
20
1961-65 1966-70 1971-75 1976-80 1981-85 1986-90 1991-1995 1996-99
Per
cent Maize
Rice
Wheat
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Background
• International rice market: Thin and volatile
- Sellers and buyers enter the market depending on their domestic crop situation
![Page 9: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/9.jpg)
Background
• International rice market: Thin and volatile
- Sellers and buyers enter the market depending on their domestic crop situation
• Six major exporters account for 85% of world market:
- Thailand 30%- Vietnam 18%- China 10-11%- USA 10-11%- India 10-11%- Pakistan 7%
![Page 10: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/10.jpg)
Background
• International rice market: Thin and volatile
- Sellers and buyers enter the market depending on their domestic crop situation
• Six major exporters account for 85% of world market:
- Thailand 30% (largest exporter for a long time)
- Vietnam 18% (re-entered the int’l mkt in 1989)
- China 10-11%- USA 10-11%- India 10-11%- Pakistan 7%
![Page 11: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/11.jpg)
Background
• International rice market: Thin and volatile
- Sellers and buyers enter the market depending on their domestic crop situation
• Six major exporters account for 85% of world market:
- Thailand 30% (largest exporter for a long time)
- Vietnam 18% (re-entered the int’l mkt in 1989)
- China 10-11%- USA 10-11%- India 10-11%- Pakistan 7%
• A few large and many smaller importers:
- Indonesia, Bangladesh, Philippines, Malaysia- Middle East, Sub-Saharan Africa- Latin America and Caribbean- European Union
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Background
Rice policies
• Rice: staple food in almost all rice-producing Asian cntrs• Key policy obj: self-sufficiency and stable domestic
prices
Restrictive trade policy instruments
Domestic support measures
Isolated markets
• State trading enterprises
• Ad valorem tariffs, specific t’s, combin. t’s, variable levies
• Import and export quotas, seasonal bans, TRQs
• Export subsidies
• Preferential trade agreements, govt to govt contracts
![Page 13: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/13.jpg)
Cointegration analysis
• Determine validity of Armington assumption of product heterogeneity
• Law of One Price (LOP)
Test for 1 = 1 in equation ln(p1) = 0 + 1ln(p2) + t
• Prices are non-stationary. To avoid invalid inference and spurious regressions use cointegration to identify stable long-run relations between prices
• Vector Autoregressive (VAR) model in VECM form:
Xt = Xt-1 + 1Xt-1 + … + k-1Xt-k + Dt + t
where Xt is a vector of p endogenous variables, ie. prices
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Hypothesis testing
Law of One Price
Accepted
Products
Perfect substitutes
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Hypothesis testing
Law of One Price Long run exclusion
Accepted
Accepted
Products
Perfect substitutes
Non-substitutableRejected
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Hypothesis testing
Law of One Price Long run exclusion
Accepted
Accepted
RejectedRejected
Products
Perfect substitutes
Non-substitutable
Imperfect substitutes
Rejected
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Hypothesis testing
Also test for weak exogeneity: response to disequilibrium
Long run segmented markets
Long run leader markets
Long run follower markets
Long run regulator markets
Long run exclusion
Weakexogeneity
Classification of markets:
x
x
x
x
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Data
Monthly price series: Rice type/quality
US 2/4
Thai 100
Thai 5%
Vietnamese 5%
Indian 5%
Thai 25% Vietnamese 25%
Indian 25%
Thai A1 Super
Available for 1990:01 – 2001:12, i.e. 144 observationsExcept India 1996:01 – 2001:12, i.e. 72 observations
Deflated by relevant CPI
Very high quality:
High quality:
Low quality:
Very low quality:
![Page 19: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/19.jpg)
Data
Monthly price series: Rice type/quality Avg. (real) price USD/
ton
US 2/4 291
Thai 100 213
Thai 5% 205
Vietnamese 5% 112
Indian 5% 220
Thai 25% 167
Vietnamese 25% 90
Indian 25% 198
Thai A1 Super 86
Available for 1990:01 – 2001:12, i.e. 144 observationsExcept India 1996:01 – 2001:12, i.e. 72 observations
Deflated by relevant CPI
Very high quality:
High quality:
Low quality:
Very low quality:
![Page 20: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/20.jpg)
Nesting structure for the test of the Law of One Price on the int’l rice market
The international and inter-quality rice market
Thai100 5% brokens 25% brokens Thai A1US 2/4
High quality Low quality
Thailand
Vietnam
India
Thailand
Vietnam
India
![Page 21: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/21.jpg)
Nesting structure for the test of the Law of One Price on the int’l rice market
The international and inter-quality rice market
Thai100 5% brokens 25% brokens Thai A1US 2/4
High quality Low quality
Thailand
Vietnam
India
Thailand
Vietnam
India
![Page 22: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/22.jpg)
Nesting structure for the test of the Law of One Price on the int’l rice market
The international and inter-quality rice market
Thai100 5% brokens 25% brokens Thai A1US 2/4
High quality Low quality
Thailand
Vietnam
India
Thailand
Vietnam
India
![Page 23: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/23.jpg)
Nesting structure for the test of the Law of One Price on the int’l rice market
The international and inter-quality rice market
Thai100 5% brokens 25% brokens Thai A1US 2/4
High quality Low quality
Thailand
Vietnam
India
Thailand
Vietnam
India
![Page 24: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/24.jpg)
Nesting structure for the test of the Law of One Price on the int’l rice market
The international and inter-quality rice market
Thai100 5% brokens 25% brokens Thai A1US 2/4
High quality Low quality
Thailand
Vietnam
India
Thailand
Vietnam
India
![Page 25: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/25.jpg)
Nesting structure for the test of the Law of One Price on the int’l rice market
The international and inter-quality rice market
Thai100 5% brokens 25% brokens Thai A1US 2/4
High quality Low quality
Thailand
Vietnam
India
Thailand
Vietnam
India
![Page 26: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/26.jpg)
Results
LOP is rejected in most cases
Summary of results: Validity of the Law of One Price and classification of markets Market type / Market 5% brokens 25% brokens Low quality High quality International and
inter-quality*
Long run segmented market
Long run leader market Thai A1
Long run follower market Thai 5% Viet 5%
Viet 25%
Long run regulator market
Note: The circles indicate the markets for which there is evidence that the Law of One Price holds. * The Indian prices could not be included due to the short length of these time series relative to the number of parameters to be estimated in this model.
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Results
LOP is rejected in most cases
Summary of results: Validity of the Law of One Price and classification of markets Market type / Market 5% brokens 25% brokens Low quality High quality International and
inter-quality*
Long run segmented market
Long run leader market Thai A1
Long run follower market Thai 5% Viet 5%
Viet 25%
Long run regulator market
Note: The circles indicate the markets for which there is evidence that the Law of One Price holds. * The Indian prices could not be included due to the short length of these time series relative to the number of parameters to be estimated in this model.
![Page 28: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/28.jpg)
Results
LOP is rejected in most cases
Summary of results: Validity of the Law of One Price and classification of markets Market type / Market 5% brokens 25% brokens Low quality High quality International and
inter-quality*
Long run segmented market Inde 5% Viet 25% Thai 25%
Inde 25%
Long run leader market Thai 25% Thai A1
Thai 100 Thai 5%
US 2/4 Thai A1
Long run follower market Thai 5% Viet 5%
Inde 25% Viet 25% US 2/4 Viet 5% Inde 5%
Thai 5% Viet 5%
Thai 25%
Long run regulator market Thai 100 Viet 25%
Note: The circles indicate the markets for which there is evidence that the Law of One Price holds. * The Indian prices could not be included due to the short length of these time series relative to the number of parameters to be estimated in this model.
![Page 29: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/29.jpg)
Qualifications and conclusions of coint. analysis
Qualifications:
• Relatively short time series: may not be capturing the long run integration relations accurately
• Could consider including cpi in models
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Qualifications and conclusions of coint. analysis
Qualifications:
• Relatively short time series: may not be capturing the long run integration relations accurately
• Could consider including cpi in models
Conclusions:
1. Int’l markets are highly segmented since LOP rejected in most cases
2. The Thai markets take on a long run leader role
3. Vietnamese rice is considered to be of a lower quality compared with rice of similar grading from other cntrs
![Page 31: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/31.jpg)
Conclusion and next steps in the analysis
Armington assumption of heterogenous goods is valid
Proceed to estimate elasticities of substitution among different sources
Step 1: Is the Armington structure appropriate ?
Step 2: Elast. of subst. estimated for key importers
Step 3: Simple illustration of implications for trade lib.
![Page 32: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/32.jpg)
Estimating Armington elasticities
• Method• Literature• Basic model:• ECM specification
• Data• monthly series on import values/quantities for
semi- and wholly-milled rice (HS-6 level)• available for USA, JPN, EU, BRA and IDN • series length differs; • many small partners and many zero observations
)/ln(
)/ln(
ij
jiij pp
)()1()1()()( 321 tutPtQtPatQ ijijijijijijijijij
![Page 33: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/33.jpg)
Estimation results
• Generally robust estimates for short-run elas., but not for long-run ones
• Lower values, compared to those used in standard GTAP
• but consistent with co-integration analysis
estimated elas.partner pairs short-run long-run GTAP
India-EU 0.835*** 0.675*** 4.4India-Pakistan 0.962*** 0.921** 4.4India-Thailand 0.962*** 0.868** 4.4India-China 1.65*** 1.526*** 4.4EU-Pakistan 0.886*** 0.726* 4.4EU-Thailand 0.692*** 0.472 4.4EU-China 1.997*** 2.055*** 4.4Pakistan-Thailand 0.905*** 0.67 4.4Pakistan-China 2.11*** 2.33*** 4.4Thailand-China 1.925*** 1.922*** 4.4
Table. Estimated subsitution elasticities for USA
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Armington Structure in GTAP
composite goods
domestically producedcomposite imported
ESUBD
source 1 source 2 source n
ESUBM
![Page 35: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/35.jpg)
Illustrative trade liberalizarion scenarios: 100% tariff cut for rice under alternative parameters
• Exp1— default GTAP parameter values for ESUBD and ESUBM
• Exp2 — average of estimated ESUBM; default GTAP ESUBD
• Exp3 — average of estimated ESUBM; ESUBD set to half of ESUBM
RegionsExp1
(GTAP value) Exp2 Exp3
ESUBD all 2.2 2.2 0.615
ESUBM Indonesia 4.4 1.632 1.632
USA 4.4 1.343 1.343
EU 4.4 1.413 1.413
Brazil 4.4 0.94 0.94
other 4.4 1.23 1.23
Table. Parameters used in the experiments
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Experiment results: changes in trade shares by sources
Note: Changes are based on the shares from GTAP database; the differences are multiplied by 100
Imports into Japan
-8
-6
-4
-2
0
2
4
6
AUS CHN THA VNM REA IND USA EU
Exp1 (GTAP value)Exp2Exp3
![Page 37: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/37.jpg)
Note: Changes are based on the shares from GTAP database; the differences are multiplied by 100
Experiment results: changes in trade shares by sources
Imports into USA
-12
-10
-8
-6
-4
-2
0
2
4
AUS CHN THA VNM REA IND USA EU
Exp1 (GTAP Value)Exp2Exp3
![Page 38: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/38.jpg)
Experiment results: total rice imports
% changes in total imports
-20
-10
0
10
20
30
40
50
60
70
80Exp1
Exp2
Exp3
![Page 39: The International Rice Market: Market Integration and Import Demand Analysis Danish Research Institute of Food Economics Chantal Pohl Nielsen and Wusheng.](https://reader030.fdocuments.us/reader030/viewer/2022032804/56649e575503460f94b4f44d/html5/thumbnails/39.jpg)
Concluding remarks
• Conclusions– Co-integration analysis accepts the Armington assumption
of heterogeneous rice products– Estimation confirms co-integration results and finds lower
values of ESUBM– Trade liberalization experiment using estimated ESUBM
leads to persistent trade shares by sources, although total trade flows not affected much
• Further efforts– Further econometric investigation to get better estimates
for long run elas.– Longer time series – Trade modeling structure that can accormodate pair-wise
ESUBM (?)